Case Study

Bottom Line Benefits for Cities Going Green

Georgetown, Texas, never set out to be one of the first municipalities in the U.S. to power itself entirely with renewable electricity. Instead, says Jim Briggs, Georgetown’s General Manager of Utilities and Assistant City Manager, the goal has always been improving the bottom line for the city’s businesses and 70,000 residents. “Our objective has always been to provide our customers with the most cost-effective, least risky and lowest-cost product that I can,” he says.

The story begins in the mid-2000s, when Georgetown, a far more conservative city than Austin 28 miles to the south (it voted 60% Republican in 2012), began to worry that Briggs’ objective was under threat. The city-owned utility had been buying wholesale power from the Lower Colorado River Authority in a long-term contract scheduled to end in 2016. About 60 percent of the city’s electricity was generated from coal and 40 percent from natural gas. What concerned city officials was that the River Authority was planning to build a new coal plant in Texas. Not a good choice, they thought. With tighter rules on air pollution, water quality and greenhouse gas emissions virtually inevitable, they believed, a new coal plant would increase risks and costs for Georgetown. “We began to question whether this was in our best interest,” says Briggs, who has been with the utility since 1986.

So Georgetown opted out of the new coal plant. It negotiated an exit to the contract four years early and planned a new strategy. “We felt a combination of natural gas, nuclear and some wind would hedge us against the regulations and keep us competitive on price,” says Briggs. But when the contract with Lower Colorado River Authority ended in 2012 “we were still searching for a definitive resource for the future,” Briggs says.

That’s when a plunge in the prices of wind power from the Texas panhandle created a major opportunity to lock in low prices. In late 2013, the city signed a contract for electricity from a wind farm being built near Amarillo. “That was the first step in nailing down a big chunk of renewables,” says Briggs. That project, which came on line in September 2015, brings the total wind power coming to Georgetown to about 150 MW—in a city where peak demand, which mainly occurs on August afternoons, is 145 MW (City of Georgetown Texas, n.d.).1

At the same time, the city realized that the perfect complement to wind, which typically blows strongest at night, was solar, which peaks in the afternoon. The problem in 2013, however, was that the wholesale price of solar power was then as high as 9 cents per kWh—too expensive for Georgetown, where retail customers pay roughly 9.5 cents per kWh. “When we plugged in the numbers, we couldn’t make it work,” Briggs says.

Then the market worked in the city’s favor again. The price of solar panels from China plummeted, and developers raced to build solar arrays before the investment tax credit was set to expire. With long-term contracts available in the range of 4 to 5 cents/kWh, “we knew we could pull the trigger,” Briggs says. In early 2015, Georgetown signed up with SunEdison for 150 MW of solar power from a plant scheduled to be completed in West Texas in 2016. Georgetown expects that having more than twice as much capacity as the summer afternoon peak demand means that the city will be able to run entirely on renewable electricity almost all of the time—and usually with excess power to sell in the electricity markets.

“We didn’t do this to save the world,” says Briggs. The decision is simply a shrewd financial one. Not only can the city guarantee stable electricity prices for at least a decade, completely insulating itself from possible fossil fuel price shocks, it also expects to have excess power even during the hottest parts of the day when high state-wide demand can send spot prices soaring past 50 cents/kWh. Selling that extra power at high prices would bring a significant windfall, some of which the utility can pass on to customers in lower bills. Everyone benefits.

Georgetown is far from the only city or region seeing bottom line gains from going greener. Burlington, Vermont, is now completely powered with renewable electricity, using a mix of 45 percent hydro, 35 percent biomass and 20 percent wind (Ring, 2014).2 Ken Nolan, Chief Operating Officer at Burlington Electric, calculates that eliminating fossil fuel use will save the city about $20 million dollars over the next two decades and help keep rates, which haven’t increased since 2009, stable.

Meanwhile, Fort Collins, Colorado, accelerated the targets in its Climate Action Plan in early 2015 by planning to slash greenhouse gas emissions 80 percent by 2030—and to achieve zero net emissions by 2050 (City of Fort Colins, n.d.).3 One of the key reasons: the chance to turn the city into a hub for a “climate economy,” says Jackie Kozak Thiel, chief sustainability officer for the city. “These changes are actually going to provide economic opportunities.”

Los Angeles has “already cut pollutants in our air by 66 percent despite growing our population by 1 million people,” observes Mayor Eric Garcetti, co-founder of the Mayors’ National Climate Action Agenda. Now the city aims to cut greenhouse gas emissions by 45 percent by 2025 and 80 percent by 2050. “This is exciting progress for a city that is already on its way to having the largest pure electric vehicle fleet in the nation and that will be off coal within 10 years,” says Garcetti.

And in Iowa, the amount of the state’s electricity generated from coal dropped from 70 percent in 2010 to 50 percent in 2014, according to Bloomberg New Energy Finance (BNEF). Wind power rose from 17 percent in May 2010 to 36 percent in May 2015 (with natural gas at just 3 percent). The effect on prices? Wholesale power prices were down 34-50 percent across Iowa in the first five months of 2015, compared to average prices over same period in the previous five years—another bottom line benefit from clean energy.

But the city that many people wouldn’t expect to be a ‘green’ leader is the world’s oil and gas capital, Houston. In fact, Houston, through its agreement with Reliant Energy (The City of Houston, n.d.),4 is now the number one purchaser of renewable electricity in the nation, at 623,000 MWh per year, or about half of the city’s total demand (U.S. Environmental Protection Agency, 2014).5 Former Mayor Annise Parker put in place plans to bump that up to 75 percent or higher, thanks to projects like a 30 MW solar array in West Texas that the city approved in November 2015 that will provide electricity at 4.8 cents/kWh (Morris, 2015).6 When she was mayor, Parker called buying renewable electricity “a triple win for Houstonians” because it spurs new investment, helps bring prices down, and offers a host of environmental benefits. However, “by far the most compelling argument is control over your costs,” says William Fulton, Director of the Kinder Institute for Urban Research at Rice University in Houston. The new solar project “costs only a tiny bit more than we pay today, but gives us 15-20 years of pricing stability,” explains Laura Spanjian, who oversaw many of Houston’s green initiatives as director of the city’s Office of Sustainability until late 2015.

Houston is also aggressively improving the energy efficiency of scores of city facilities, reducing their energy use by 30 percent or more, with paybacks on the investments averaging less than 10 years. Over the objections of local builders, it has required that new homes be 15 percent more efficient than required in standard building codes. It’s saving $3 million a year from installing LEDs at traffic lights all its 2,450 intersections, and expects $28 million in additional savings from converting 165,000 streetlights to LEDs. It opened two new light rail lines in 2015, bringing the total rail network to 23 miles—with some of the highest ridership per mile in the nation—and stimulating a market-driven boom in new infill development. It’s installed electric vehicle charging stations, a bike share system, and with private partners, added thousands of acres of green space along the city’s bayous, which will also improve flood control and water quality.

“It’s a pretty impressive set of accomplishments,” says Fulton. And especially so for a city built not just by the oil and gas industry, but also by a fierce commitment to market forces and free enterprise. “If Houston can figure it out, then everyone else ought to be able to do it,” says Michael Skelly, Founder and President of Clean Line Energy, a Houston-based transmission line developer.

Houston’s progress towards a greener, lower carbon economy is possible because businesses and residents see bottom line improvements, says Spanjian. “It is always about saving money and using less resources,” she says. “In Houston, these arguments work well.” Those savings add up, especially replicated in cities around the world, according to new research from The New Climate Economy (The New Climate Economy, 2015).7 Improving energy efficiency in buildings, investing in public transportation and taking other green steps could save cities $17 trillion in current value by 2050, the analysis shows—while also reducing annual greenhouse gas emissions by more than all of India’s current emissions.

But there are larger lessons from the stories of these cities and regions. One is that there are different possible paths to a cleaner future. Much of the progress towards clean energy and lower carbon emissions in California cities is due to the state’s groundbreaking mandates for renewable power and low emission vehicles, among other rules. “Regulation inspires innovation,” says California Governor Jerry Brown.

In contrast, Houston, Georgetown and Texas in general are examples of an alternative approach. They illustrate the powerful force for change that comes from a felicitous combination of business talent, engineering knowhow, appetite for risk-taking, a deregulated market structure that encourages innovation, some policy incentives, and the lure of profits. “Houston has a critical mass of talent and expertise because of its history in oil and gas,” Skelly explains. “In addition, the rules for new generation and transmission development are set up to encourage new entrants, so there is competition and innovation.”

So it’s no surprise that Texas leads the nation in installed wind capacity, at more than 16,000 MW (American Wind Energy Association).8 Another 6,000 MW is under construction and solar is growing rapidly, adding fuel to economic growth and creating jobs.

There’s also growing talk among business leaders that the economic engine of Houston could sputter without such ‘green’ measures as improving public transit and building parks that improve quality of life. “We talk about intellectual capital and needing to attract the best people,” says Richard Kinder, co-founder and executive chairman of Kinder Morgan, the world’s third largest energy company. “But we’re not going to be able to attract those people if we have a run down city. We have to work very hard to improve our urban environment and our urban green space.”

Gas and oil prices may be low today. But Houston has vivid memories of past price spikes, and the resulting boom and bust cycles. And now, business leaders say, there’s an opportunity to eliminate most of that risk. “The investments we are making now in renewables are setting the stage for stable, low-cost energy for the next 30-50 years,” says Clean Line Energy’s Skelly.